Gees there is a lot going on in TCPAWorld right now.

We are finishing up R.E.A.C.H.’s response to the proposed CMA rules, but I need to pause and provide a bit of flourish on this new CFPB ruling.

The Duchess already provided a broader breakdown–which you can find here–but I want to focus on one particular piece of the ruling: the part where the CFPB just found the use of “highest bidder” lead technology may be illegal in the mortgage vertical.

To understand why you need to understand one piece of the Real Estate Settlement Procedures Act. (“RESPA.”)

RESPA Section 8(a) and Regulation X, (12 CFR § 1024.14(b)), prohibits kickbacks: giving or accepting anything of value for referrals of business related to a mortgage loan.

The CFPB’s ruling–which you can read here RESPA CFPB Ruling–is primarily focused on the practice of “steering” used by digital marketplaces. That is, where a website operator puts their “thumb on the scale” in driving traffic to companies that pay more for superior placement on their site, etc. The ruling makes clear that using any “non-neutral” algorithm to rank options in favor of higher-paying clients constitutes a forbidden referral.

Ruh roh.

But while that’s bad enough news, a different piece of the ruling is a real show stopper.

As everyone in led gen knows, ping post and ping trees are very common. They allow a lead seller to get top price for a lead by permitting lead buyers to bid for the lead in real time. They’re the preferred method of selling most data and warm transfer leads. Really really common.

Well, per the CFPB this process constitutes an illegal referral. And to be honest I am not entirely sure why.

Here is what the CFPB says:

In another example, assume the Operator of a Digital Mortgage Comparison-Shopping Platform presents comparison information on multiple lenders and uses an online long form to gather detailed information from a consumer who is browsing the platform. The consumer’s information relates to the consumer’s particular borrowing needs, such as credit score and target loan amount. Soon thereafter, the Operator calls the consumer to offer an immediate phone or live chat transfer to, or callback from, a lender participating on the platform and tells the consumer that they will be “in good hands” with that lender. However, the lender that receives the lead is merely the first lender to respond to the Operator’s push notification alerting a network of lenders that a consumer is available for an immediate transfer, rather than a lender the Operator identified as meeting the consumer’s needs based on the consumer’s inputted information. The sequence of events described above is one variation of a lead generation practice that industry stakeholders sometimes call a “warm handoff” or “live transfer.”

In this example, the Operator’s actions convey to the consumer an implied endorsement of the lender when the Operator tells the consumer that they will be “in good hands” with that lender. Further, regardless of the specific words used when the transfer occurs, a consumer who inputs detailed information to the Operator immediately before a transfer to a lender would reasonably infer that the consumer is being connected to the lender that best meets their needs. Moreover, the first lender to respond to the push notification receives the lead exclusively; HUD identified exclusivity as a relevant factor in determining whether a referral arrangement is present. Therefore, the Operator’s actions exert affirmative influence and constitute a referral. An Operator that receives payment for a warm handoff is not merely receiving payment for a compensable service, for the reasons described in section I.C.1.b above. The payment also would be considered a referral fee even if it does not differ among the providers participating in the warm transfer process.

So… yeah.

Apparently the CFPB intends to treat mortgage lead generators as brokers who owe some sort of duty to the consumer to place them with the best lender for the consumer and not just the one that will pay the most for the lead.

On the one hand, I get it. On the other hand–since when are lead generators brokers? Since when do they owe consumer’s duties? Since when is a lead sale a RESPA-triggering referral.

The key to RESPA is that people should be forbidden from using their positions of trust to make a little secret cash by driving consumers to those who will pay for it. In this context, however, the consumer is provided various options and is essentially cool with all of them.

I suppose the point is that where a consumer says “I don’t care who I use–you pick” the lead generator should be picking on the basis of something other than how much money they make off the deal. But that’s not a lead generators job. In the brokerage context a broker makes a TON of money off a deal because they have duties and expertise the client relies on. The lead generator makes LITTLE money because all the yare doing is engaging consumers, assessing interest, qualifying them, and connecting them with a mortgage lender. That’s it.

The conversion of lead generators to de facto brokers has a massive impact on the lead gen space. While it doesn’t, per se, end lead generation in the mortgage vertical it does end the use of pingposts to determine lead sale. It also suggests the lead generator must be doing some qualitative assessment of which lender is best for a potential borrower to avoid a kickback finding.

Eesh.

I will say, it is unclear how potent this order will be since: i) the CFPB is still dead; and ii) this is not a formal rulemaking proceeding. Still this marks a massive policy shift from the CFPB and if the CFPB intends to begin auditing and enforcement proceedings against regulated institutions relative to the source of their leads it could be VERY impatful.

It also has me thinking about whether the R.E.A.C.H. standards need to address ping post utilization. Something for the new board to consider.